Obama's double-play on taxes
James Forsyth 8:13pm
The first order of business for the incoming Obama administration is going to be a stimulus package. With Obama’s vacation over and the President-elect moving from Chicago to DC, the details of the plan are beginning to become clearer. The Wall Street Journal reports that the administration will urge Congress to make 40 per cent of the stimulus, expected to weigh in at $775 billion, tax cuts. As it notes:
This is a clever move from the ever-pragmatic Obama team. The stimulus package is, in reality, hugely risky: the more bi-partisan cover Obama has the better for him. The personal and business tax cuts Obama is proposing—unlike Brown’s 2.5 percent cut in VAT—are politically well-targeted and will be almost impossible for the Republicans to oppose. Obama might just get the 80 plus votes in the Senate that Mike Allen says he wants.“The Obama tax-cut proposals, if enacted, could pack more punch in two years than either of President George W. Bush's tax cuts did in their first two years.”
PS Reading the WSJ piece, I was reminded of this exchange between Brown and Gaby Hinsliff in The Observer:
What differences do you expect the inauguration of President Obama to make to the international dynamic?
"What people will see is an administration that is preparing a major fiscal boost, a major stimulus package both now and for the future. I think it may change people's minds over what is happening in other countries as a result, particularly in Britain."
To the extent that Obama will influence the British debate, Brown is probably right: the headlines will suggest that the two are doing the same thing. But when you look at the details of what Obama is proposing you see a much better thought-out and designed scheme.
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DC Cat
January 5th, 2009 9:18pm Report this commentBut Obama will actually raise other taxes.
geoff
January 5th, 2009 9:51pm Report this commentThe tories would presumably oppose both though, since both require borrowing.
Roger Thornhill
January 5th, 2009 10:12pm Report this commentTax cuts mean individuals, who tend to know best how to spend the money they earn, are then able to do just that. The VAT cut is moronic. The cut in Income Tax on savings would only be good if it were part of the abolition of Income Tax, period.
What is going to be so depressing is that Brown is not going to be hauled over the coals for asserting that there is a parallel to Prince Obama's actions. Someone needs to tell him to his face that he is a lair and a fraud. Oh, and a traitor, too.
Cut & Paste - the juice.
January 5th, 2009 10:27pm Report this commentJames Quinn - 5/1/08:
The Gross Domestic Product of the United States is $14.4 trillion. Consumer spending makes up $10.2 trillion or 71% of GDP. Government spending makes up $2.9 trillion, or 20% of GDP. Domestic investment makes up $2.0 trillion, or 14% of GDP. The trade deficit of $700 billion reduces GDP by 5%. President Obama has quite a dilemma in trying to revive this economy. The American consumer has borrowed from their homes and credit cards to fuel a colossal spending spree in the last twenty years.
The dilemma is that the U.S. economic growth during the entire Bush administration was a debt induced fraud. From 1953 through 1983, consumption as a percentage of GDP ranged between 61% and 64%. Consumers rarely, if ever, borrowed against their houses. Paying off your mortgage was a goal of all families. A normalized level of consumer spending at 65% of GDP will require consumers to spend at least $1 trillion less per year. Less consumer spending will also contribute to reducing the trade deficit. The Federal Reserve and politicians running our country see a $1 trillion reduction in consumer spending as a disaster. Their positions of power would be in jeopardy.
Verity
January 6th, 2009 12:29am Report this commentRoger Thornhill, by abolishing income tax, I assume you would intend transfers to be made by user tax?
Could we hear more please?
This sounds strangely interesting (and do-able). I love it already.
Ian C
January 6th, 2009 11:01am Report this commentThe US is in a far better state than it or the markest are acknowledging. The problem is the dollar.
Americans are not spending, i.e. saving at a rate not seen since the early 1980's. Fule prices are 40% of last summer, mortgage rates of 2% are now avaialable and 94% of working pop'n are in jobs. By mid year they will be in a position to start spending again while paying down their credit cards.
Obama's stimulus will cause havoc with inflation and interest rates will rise very rapidly in 2010/11, forcing the dollar up and once more distortions in currencies will cause trouble.
The problem is in the financial system. Getting that working properly while not over-stimulating is where he needs to concentrate his political capital - if he wants re-election in 2012.
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